Federal Judge Approves End of 71-Year-Old Rules Barring Studio Ownership of Movie Theaters

The Justice Department filed to end what’s commonly known as the Paramount consent decrees in November

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A federal judge has approved the termination of the Paramount consent decrees, the set of 71-year-old antitrust rules that ended the Old Hollywood studio system and barred studios from owning movie theaters.

Not only does the ruling clear the way for movie studios to take ownership of movie theater chains, it also removes (with a two year sunset period) the previous restriction on practices for distribution known as “block booking” and “circuit dealing” that used to be commonplace as far back as the 1940s.

“Because changes in antitrust law and administration have diminished the importance of the Decrees’ restrictions, while still providing protections that will keep the probability of future violations low, the Court finds that termination of the Decrees is in the public interest,” U.S. District judge Analisa Torres wrote in a ruling Friday.

The Justice Department as led by Makan Delrahim formally filed to terminate the decrees back in November, saying that the legacy antitrust rules “served their purpose” in eliminating horizontal distribution practices and could today actually harm the American consumer.

The rules were established in the U.S. Supreme Court’s 1948 decision United 
States v. Paramount Pictures, studios had to divest from their holdings of exhibitors and stop packaging practices of their movies.

However, many in Hollywood pushed back on the removal of the decrees, including the National Association of Theater Owners, the Directors Guild and the Writers Guild of America, arguing that removing such restrictions could hurt independent films, among other things.

“If exhibitors were forced to book out the vast majority of their screens on major studio films for most of the year, this would leave little to no room for important films from smaller studios,” NATO argued in its public comments submitted to the DOJ last year.

Torres’ ruling lists four reasons why the decrees were no longer necessary, arguing that they ended the “illegal conspiracy” of the industry over time, the dramatic changes to the movie industry over the last 70 years have made it unlikely that the initial defendants, which were Paramount, Loew’s, RKO, Fox and Warner, would “reinstate their cartel to monopolize” the movie business, antitrust law has evolved to reconsider vertical integration, and any movie studios are still subject to current antitrust laws even with the decrees removal.

The ruling cites the fact that Netflix often releases dozens of movies a year that bypass theaters, the fact that many studios operating today, including Lionsgate, STX Entertainment, Roadside Attractions and Focus Features, were not subject to the decrees, and that the rulings dealt primarily with “first-run” theaters, which have gone by the wayside as the biggest movies are released wide, even day-and-date on streaming service. It even points out that MGM released 52 movies in 1939, including “Gone With the Wind,” “The Wizard of Oz” and “It’s a Wonderful Life,” but released just three films in 2018.

Torres also addresses some of the public comments that were issued arguing that the termination of the decrees would allow for the merger of a movie studio with one of the major theater chains like AMC, Regal or Cinemark but says the decrees did not “prohibit the vertical integration commenters warn about because vertical restrictions apply only to a subset of movie distributors.”

The court also addressed NATO’s comments to preserve restrictions on block booking and circuit dealing, which allow for studios to package together multiple films for one theatrical license and licensing films to all movie theaters under common ownership rather than a theater-by-theater basis.

“Requiring a key group of marquee theaters to show all of Defendants’ films– one after the other–tied them up for weeks or months, thus foreclosing independent distributors from the first-run theaters they needed to successfully launch and distribute their films,” Torres wrote. “In today’s landscape, although there may be some geographic areas with only a single one-screen theater, most markets have multiple movie theaters with multiple screens simultaneously showing multiple movies from multiple distributors. There also are many other movie distribution platforms, like television, the internet and DVDs, that did not exist in the 1930s and 40s. Given these significant changes in the market, there is less danger that a block booking licensing agreement would create a barrier to entry that would foreclose independent movie distributors from sufficient access to the market.”

The two-year sunset period on block booking and circuit dealing is in place to allow movie theaters a transition period to adjust their business models.


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